February 2012 -- Monthly Review -- Five years after the Great Financial Crisis of 2007–09 began there is
still no sign of a full recovery of the world economy. Consequently,
concern has increasingly shifted from financial crisis and recession to
slow growth or stagnation, causing some to dub the current era the Great
Stagnation.1
Stagnation and financial crisis are now seen as feeding into one
another. Thus IMF Managing Director Christine Lagarde declared in a
speech in China on November 9, 2011, in which she called for the
rebalancing of the Chinese economy:

The global economy has entered a dangerous and
uncertain phase. Adverse feedback loops between the real economy and the
financial sector have become prominent. And unemployment in the
advanced economies remains unacceptably high. If we do not act, and act
together, we could enter a downward spiral of uncertainty, financial
instability, and a collapse in global demand. Ultimately, we could face a
lost decade of low growth and high unemployment.2

To be sure, a few emerging economies have seemingly bucked the
general trend, continuing to grow rapidly—most notably China, now the
world’s second largest economy after the United States. Yet, as Lagarde
warned her Chinese listeners, “Asia is not immune” to the general
economic slowdown, “emerging Asia is also vulnerable to developments in
the financial sector.” So sharp were the IMF’s warnings, dovetailing
with widespread fears of a sharp Chinese economic slowdown, that Lagarde
in late November was forced to reassure world business, declaring that
stagnation was probably not imminent in China (the Bloomberg.com
headline ran: “IMF Sees Chinese Economy Avoiding Stagnation.”)3

Nevertheless, concerns regarding the future of the Chinese economy
are now widespread. Few informed economic observers believe that the
current Chinese growth trend is sustainable; indeed, many believe that
if China does not sharply alter course, it is headed toward a severe
crisis. Stephen Roach, non-executive chairman of Morgan Stanley Asia,
argues that China’s export-led economy has recently experienced two
warning shots: first the decline beginning in the United States
following the Great Financial Crisis, and now the continuing problems in
Europe. “China’s two largest export markets are in serious trouble and
can no longer be counted on as reliable, sustainable sources of external
demand.”4

In order to avoid looming disaster, the current economic consensus
suggests that the Chinese economy needs to rebalance its shares of net
exports, investment, and consumption in GDP—moving away from an economy
that is dangerously over-reliant on investment and exports,
characterized by an extreme deficiency in consumer demand, and
increasingly showing signs of a real estate/financial bubble. But the
very idea of such a fundamental rebalancing—on the gigantic scale
required—raises the question of contradictions that lie at the center of
the whole low-wage accumulation model that has come to characterize
contemporary Chinese capitalism, along with its roots in the current
urban-rural divide.

Giving life to these abstract realities is the burgeoning public
protest in China, now consisting of literally hundreds of thousands of
mass incidents a year—threatening to halt or even overturn the entire
extreme “market-reform” model.5
China’s reliance on its “floating population” of low-wage internal
migrants for most export manufacture is a source of deep fissures in an
increasingly polarized society. And connected to these economic and
social contradictions—that include huge amounts of land seized from
farmers—is a widening ecological rift in China, underscoring the
unsustainability of the current path of development.

Nor are China’s contradictions simply internal. The complex system of
global supply chains that has made China the world’s factory has also
made China increasingly dependent on foreign capital and foreign
markets, while making these markets vulnerable to any disruption in the
Chinese economy. If a severe Chinese crisis were to occur it would open
up an enormous chasm in the capitalist system as a whole. As the New York Times noted
in May 2011, “The timing for when China’s growth model will run out of
steam is probably the most critical question facing the world economy.”6 More important than the actual timing, however, are the nature and repercussions of such a slowdown.

Capitalist contradictions with Chinese characteristics

For many the idea that the Chinese economy is rife with
contradictions may come as something as a surprise since the hype on
Chinese growth has expanded more rapidly than the Chinese economy
itself. As the Wall Street Journal sardonically queried in July
2011, “When exactly will China take over the world? The moment of truth
seems to be coming closer by the minute. China will become the largest
economy by 2050, according to HSBC. No, its 2040, say analysts at
Deutsche Bank. Try 2030, the World Bank tells us. Goldman Sachs points
to 2020 as the year of reckoning, and the IMF declared several weeks ago
that China’s economy will push past America’s in 2016.” Not to be
outdone, Harvard historian Niall Ferguson declared in his 2011 book, Civilization: The West and the Rest,that “if present rates persist China’s economy could surpass America’s in 2014 in terms of domestic purchasing power.”7

This prospect is generally viewed with unease in the old centers of
world power. But at the same time the new China trade is an enormous
source of profitability for the Triad of the United States, Europe, and
Japan. The latest round of rapid growth that has enhanced China’s global
role was an essential component of the recovery of global financialized
capitalism from the severe crisis of 2007–09, and is counted on in the
future.

There are clearly some who fantasize, in today’s desperate
conditions, that China can carry the world economy on its back and keep
the developed nations from what appears to be a generation of stagnation
and intense political struggles over austerity politics.8
The hope here undoubtedly is that China could provide capitalism with a
few decades of adequate growth and buy time for the system, similar to
what the U.S.-led debt and financial expansion did over the past thirty
years. But such an “alignment of the stars” for today’s world capitalist
economy, based on the continuation of China’s meteoric growth, is
highly unlikely.

“Let’s not get carried away,” the Wall Street Journal cautions
us. “There’s a good deal of turmoil simmering beneath the surface of
China’s miracle.” The contradictions it points to include mass protests
(rising to as many as 280,000 in 2010), overinvestment, idle capacity,
weak consumption, financial bubbles, higher prices for raw materials,
rising food prices, increasing wages, long-term decline in labor
surpluses, and massive environmental destruction. It concludes, “If
nothing else, the colossal challenges that lie ahead for China provide
an abundance of good reasons to doubt long-term projections of the
country’s economic supremacy and global dominance.” The immediate future
of China is therefore uncertain, throwing added uncertainty on the
entire global economy. As we shall see, not only might China not
bail out global capitalism at present, an argument can be made that it
constitutes the single weakest link for the global capitalist chain.9

At question is the extraordinary rate of Chinese expansion,
especially when compared with the economies of the Triad. The great
divergence in growth rates between China and the Triad can be seen in
Chart 1 (below), showing ten-year moving averages of annual real GDP
growth for the United States, the European Union, and Japan, from 1970
to 2010. While the rich economies of the United States, Western Europe,
and Japan have been increasingly prone to stagnation—overcoming this in
1980–2006 only by means of a series of financial bubbles—China’s economy
over the same period (beginning in the Mao era) has continually soared.
China managed to come out of the Great Financial Crisis period largely
unaffected with a double-digit rate of growth, at the same time that
what The Economist has dubbed “the moribund rich world” was laboring to achieve any positive growth at all.10

To give a sense of the difference that the divergence in growth rates
shown in Chart 1 makes with respect to exponential growth, an economy
growing at a rate of 10 percent will double in size every seven years or
so, while an economy growing at 2 percent will take thirty-six years to
double in size, and an economy growing at 1 percent will take
seventy-two years.11

The economic slowdown in the developed, capital-rich economies is
long-standing, associated with deepening problems of surplus capital
absorption or overaccumulation. As the New York Times states,
“Mature countries like the United States and Germany are lucky to grow
about 3 percent annually”—indeed, today we might say lucky to grow at 2
percent. Japan’s growth rate has averaged less than 1 percent over the
period 1992 to 2010. As Lagarde noted in a speech in September 2011,
according to the latest IMF projections, “the advanced economies will
only manage an anemic 1 1/2-2 percent” growth rate over the years
2011–12. China, in contrast, has been growing at 10 percent.12

The problems of the mature economies are complicated today by two
further features: (1) the heavy reliance on financialization to lift the
economy out of stagnation, but with the consequence that the financial
bubbles eventually burst, and (2) the shift towards the corporate
outsourcing of production to the global South. World economic growth in
recent decades has gravitated to a handful of emerging economies of the
periphery; even as the lion’s share of the profits derived from global
production are concentrated within the capitalist core, where they
worsen problems of maturity and stagnation in the capital-rich
economies.13

As the structural crisis within the center of the capitalist world
economy has deepened, the hope has been raised by some that China will
serve to counterbalance the tendency toward stagnation at the global
level. However, even as this hope has been raised it has been quickly
dashed—as it has become increasingly apparent that cumulative
contradictions are closing in on China’s current model, producing
growing panic within world business.

Ironically, today’s fears regarding the Chinese economy stem in part
from the way China engineered its way out of the global slump brought on
by the Great Financial Crisis—a feat that was regarded initially by
some as conclusive proof that China had “decoupled” itself from the
West’s fate and represented an unstoppable growth machine. Faced with
the world crisis and declining foreign trade, the Chinese government
introduced a massive $585 billion stimulus plan in November 2008, and
urged state banks aggressively to make new loans. Local governments in
particular ran up huge debts associated with urban expansion and real
estate speculation. As a result, the Chinese economy rebounded almost
instantly from the crisis (in a V-shaped turnaround). The growth rate
was 7.1 percent in the first half of 2009 with state-directed
investments estimated as accounting for 6.2 percentage points of that
growth.14
The means of accomplishing this was an extraordinary increase in fixed
investment, which served to fill the gap left by falling exports.

This can be seen in Table 1, which shows the percent contribution to
China’s GDP of consumption, investment, government, and trade (net
exports). The sharp increase in investment as a share of GDP, which rose
7 percentage points between 2007–10, mirrored the sharp decrease in the
share of both trade and consumption over the same period, which dropped
5 and 2 percentage points, respectively. Meanwhile, the share of
government spending in GDP remained steady. Investment alone now
constitutes 46 percent of GDP, while investment plus trade equals 52
percent.

As Michael Pettis, a professor at Peking University’s Guanghua School
of Management and a specialist in Chinese financial markets, explained,
the sharp drop in the trade surplus in the crisis might “have forced
GDP growth rates to nearly zero.” However, “the sudden and violent
expansion in investment” served as “the counterbalance to keep growth
rates high.” Of course behind the dramatic ascent of the investment
share of GDP, rising 10 percentage points during the years 2002–10, lay
the no less dramatic descent of the consumption share, which dropped 10
perentage points over the same period, from 44 percent to 34 percent,
the smallest share of any large economy.15

With investment spending running at close to 50 percent in this
period the Chinese economy is facing widening overaccumulation problems.
For New York University economist Nouriel Roubini:

The problem, of course, is that no country can be
productive enough to reinvest 50% of GDP in new capital stock without
eventually facing immense overcapacity and a staggering non-performing
loan problem. China is rife with overinvestment in physical capital,
infrastructure, and property. To a visitor, this is evident in sleek but
empty airports and bullet trains (which will reduce the need for the 45
planned airports), highways to nowhere, thousands of colossal new
central and provincial government buildings, ghost towns, and brand-new
aluminum smelters kept closed to prevent global prices from plunging.

Commercial and high-end residential investment has been excessive,
automobile capacity has outstripped even the recent surge in sales, and
overcapacity in steel, cement, and other manufacturing sectors is
increasing further…. Overcapacity will lead inevitably to serious deflationary pressures, starting with the manufacturing and real-estate sectors.

Eventually, most likely after 2013, China will suffer a hard landing.
All historical episodes of excessive investment—including East Asia in
the 1990’s—have ended with a financial crisis and/or a long period of
slow growth.16

Overinvestment has been accompanied by increasing financial frailty
raising the question of a “China Bubble.” The government’s fixed
investment stimulus worked in part through encouragement of massive
state bank lending and a local borrowing binge, resulting in further
speculative boom centered primarily on urban real estate. China’s urban
expansion currently consumes half of the world’s steel and concrete
production as well as much of its heavy construction equipment.
Construction accounts for about 13 percent of China’s GDP.

Although insisting that the bursting of China’s “big red bubble” still is “ahead of us,” Forbes magazine
cautioned its readers in 2011 that “China’s real estate bubble is
multiplying like a contagious disease,” asking: “China’s housing market:
when will it pop, and how loud of an explosion will it make when it
goes boom?” But for all of that, Forbes added reassuringly that
“China’s property bubble is different,” since it is all under the
watchful eyes of state banks that operate like extensions of government
departments.

This notion of a visionary and wise Chinese state that can demolish
any obstacles put before the economy on its current path, is the
corollary of the notion that the Chinese economy as it now exists will
grow at double-digit annual rates far into the future. It is an
illusion—or delusion. The Chinese model of integration into global
capitalism contains contradictions that will obstruct its extension.

This is certainly true in finance. While Forbes is hopeful, the Financial Times reports
something quite different. State banks, supposedly at the center of the
financial system, have been hemorrhaging in the last few years due to
the loss of bank deposits to an unregulated shadow banking system that
now supplies more credit to the economy than the formal banking
institutions do. Indicative of a shift toward Ponzi finance, the most
profitable activity of state banks is now loaning to the shadow banking
system. A serious real estate downturn began in August 2011 when China’s
top ten property developers reported that they had unsold inventories
worth $50 billion, an increase of 46 percent from the previous year.
Property developments are highly leveraged and developers have become
increasingly dependent on underground (shadow) lenders, who are
demanding their money. As a result, prices on new apartments have been
slashed by 25 percent or more, reducing the value of existing
apartments. China in late 2011 was experiencing a significant property
price downturn, with sharp drops in home prices, which had risen by 70
percent since 2000.

Mizuho Securities Asia bank analyst Jim Antos, a close observer of
the sector, estimated in July 2011 that bank lending doubled between
December 2007 and May 2011, and although the rate of increase has
declined over the last year, it remains far higher than the growth in
GDP. As a result, Antos calculates that bank loans stood at $6,500 per
capita in 2010 compared to GDP per capita of $4,400, and that the
disproportion continues to increase, a situation he terms
“unsustainable.” In addition there are unknown amounts of
off-balance-sheet loans, and the current reporting of non-performing
loans at 1 percent of total loans only serves to guarantee a sharp
increase in this rate in the near future by 100 percent and up. Antos
and other observers have noted that the banks’ capitalization was
inadequate even prior to the break in real estate prices. Despite the
vast financial resources that the Chinese government has in its role as
lender of last resort, a sharp decline in real estate prices and in
construction, and therefore in GDP, would produce a full-blown crisis of
market confidence in a situation marked by great uncertainty and fear.17

Already in 2007 Chinese Premier Wen Jiabao declared that China’s
economic model was “unstable, unbalanced, uncoordinated and ultimately
unsustainable.” Five years later this is now more obvious than ever. The
most intractable problem, the root cause of instability, is the low and
declining share of GDP devoted to household consumption, which has
dropped around 11 percentage points in a decade, from 45.3 percent of
GDP in 2001 to 33.8 percent in 2010. All the calls for rebalancing thus
boil down to the need for a massive increase in the share of consumption
in the economy.

Such rebalancing has been a major goal of the Chinese government
since 2005, and there is no shortage of proposals on how to accomplish
it. But they all founder in the face of the underlying reality. As
Michael Pettis states: “Low consumption levels are not an accidental
coincidence. They are fundamental to the growth model.” First among the
relevant factors is the (super)exploitation of workers in the new export
sectors, where wages grow slowly while productivity with advanced
technology grows rapidly. The rise in wages necessary to yield an
increase in consumption as a share of GDP would drive the large
foreign-owned assembly plants to countries with lower wages. And the
surrounding penumbra of small- and middle-scale plants run by Chinese
capitalists would also begin to disappear, squeezed by tightening credit
and already increasingly prone to embezzlement and flight.18

The declining share of consumption in GDP is sometimes attributed to
China’s high savings rate, largely associated with the attempts by
people to put aside funds to safeguard their future due to the lack of
national safety net. Between 1993 and 2008 more than 60 million state
sector jobs were lost, the majority through layoffs due to the
restructuring of state-owned enterprises beginning in the 1990s. This
represented a smashing of the “iron rice bowl” or the danwei system of work-unit socialism that had provided guarantees to state-enterprise workers.19
Social provision in such areas as unemployment compensation, social
insurance, pensions, health care, and education have been sharply
reduced. As Minxin Pei, senior associate in the China Program at the
Carnegie Endowment for International Peace, has written:

Official data indicate that the government’s
relative share of health-care and education spending began to decline in
the 1990s. In 1986, for example, the state paid close to 39 percent of
all-health care expenditures…. By 2005, the state’s share of health-care spending fell to 18 percent….
Unable to pay for health care, about half of the people who are sick
choose not to see a doctor, based on a survey conducted by the Ministry
of Health in 2003. The same shift has occurred in education spending. In
1991, the government paid 84.5 percent of total education spending. In
2004, it paid only 61.7 percent…. In 1980,
almost 25 percent of the middle-school graduates in the countryside
went on to high school. In 2003, only 9 percent did. In the cities, the
percentage of middle-school graduates who enrolled in high school fell
from 86 to 56 percent in the same period.20

The growing insecurity arising from such conditions has compelled
higher savings on the part of the relatively small proportion of the
population in a position to save.

However, the more fundamental cause for rapidly weakening consumption
is growing inequality, marked by a falling wage share and declining
incomes in a majority of households. As The Economist magazine
put it in October 2007, “The decline in the ratio of consumption to GDP
does not reflect increased saving; instead, it is largely explained by a
sharp drop in the share of national income going to households (in the
form of wages, government transfers and investment income). Most
dramatic has been the fall in the share of wages in GDP. The World Bank
estimates that this has dropped from 53 percent in 1998 to 41 percent in
2005.”21

The core contradiction thus lies in the extreme form of exploitation
that characterizes China’s current model of class-based production, and
the enormous growth of inequality in what was during the Mao period one
of the most egalitarian societies. Officially the top 10 percent of
urban Chinese today receive about twenty-three times as much as the
bottom 10 percent. But if undisclosed income is included (which may be
as much as $1.4 trillion dollars annually), the top 10 percent of income
recipients may be receiving sixty-five times as much as the bottom 10
percent.22
According to the Asian Development Bank, China is the second most
unequal country in East Asia (of twenty-two countries studied), next to
Nepal. A Boston Consulting Group study found that China had 250,000 U.S.
dollar millionaire households in 2005 (excluding the value of primary
residence), who together held 70 percent of the country’s entire wealth.
China is a society that still remains largely rural, with rural incomes
less than one-third those in cities. The majority of workers in export
manufacturing are internal migrants still tied to the rural areas, who
are paid wages well below those of workers based in the cities.23

China’s 'opening' and the global supply chain

Today’s Chinese economy is a product of both the Chinese Revolution
of 1949 and of what William Hinton called “The Great Reversal,” or what
is more often referred to as the “reform period,” which began in 1978
under Deng Xiaoping, two years after Mao Zedong’s death. The Chinese
Revolution introduced a massive land reform, the greatest in history,
expropriating the land from the landlord class and creating a system of
collective agriculture. Industry, meanwhile, came to be dominated by
state enterprises. The twofold system of worker rights took the form of
what Hinton called the “clay rice bowl” in the countryside, which
guaranteed peasants a permanent relation to the land as usufruct, or
user rights, organized in the form of collective agriculture; while
workers in state enterprises benefitted from the “iron rice bowl” or a
system of guaranteed lifetime jobs and benefits. (There was also what
was called a “golden rice bowl,” representing the privileges of state
bureaucrats.)24

Economic growth in the Mao period was impressive, despite periodic
setbacks and internal struggle that developed within the Party itself
(culminating in the Cultural Revolution). Economic growth during the
entire 1966–76 period reached an annual average rate of 6 percent
according to World Bank data, while industrial production grew at an
annual average rate of around 10 percent. An immense industrial
infrastructure, both heavy and light, was created virtually from scratch
in these years, complete with a transportation and power network, that
by the end of the Mao period employed 100 million people. This then was
exploited in the market-reform period that followed. The output of
Chinese agriculture was improved during the Cultural Revolution period
and productivity reached remarkable levels. As Mark Selden, then
coeditor of the Bulletin of Concerned Asian Scholars, wrote,
“In 1977 China grew 30 to 40 percent more food per capita [than India]
on 14 percent less arable land and distributed it far more equitably to a
population…50 percent larger.”25

The market reforms associated with the Great Reversal were aimed at
eliminating or expropriating collective agriculture and state
enterprises, while proletarianizing the population by weakening both the
iron rice bowl and the clay rice bowl, i.e., the economic gains made by
peasants and workers in the revolution. In the countryside, collective
farms were broken up and replaced with a family contract system. The
land was divided into strips (still allocated by the collective) to
which peasants had user rights. Each noodle-like strip of land was small
and made working the land less efficient, providing a very marginal
existence for peasant families. As Hinton wrote: “This was not ‘postage
stamp’ land such as used to exist before land reform, but ‘ribbon land,’
‘spaghetti land,’ ‘noodle land’—strips so narrow that often not even
the right wheel of a cart could travel down one man’s land without the
left wheel pressing down on the land of another.”26

Although some left analysts of China’s development, such as
world-system theorist Giovanni Arrighi, have called China a case of
“accumulation without dispossession,” the market reform period
was in fact characterized from the start by massive accumulation by
dispossession (primitive accumulation), and hundreds of millions of
people were proletarianized.27 As geographers Richard Walker and Daniel Buck succinctly explained in New Left Review in 2007:

There are three major routes to proletarianization
in China: from the farming countryside, out of collapsing state
companies in the cities, and through the dissolution of former village
enterprises. To take the first of these: rural displacement to the
cities is vast, numbering roughly 120 million since 1980—the largest
migration in world history. The abolition of the communes and
instigation of the household responsibility system allowed some farmers
to prosper in the richest zones, but it has left marginal producers
increasingly exposed to low price, poor soils, small plots, lack of
inputs, and the corruption of predatory local cadres. In the cities,
peasant migrants do not have residency rights and become long-term
transients. This is due to the household registration or hukou system, created in the Maoist era to limit rural-to urban migration….

A second route into the new wage-labour class is out of state owned
enterprises (SOEs). These were the centerpiece of Maoist
industrialization, accounting for nearly four-fifths of non-agricultural
production. Most are in the cities, where they employed 70 million
people in the 1980s. This form of employment has been steadily
dismantled, starting with a law that allowed temporary hire without
social protection [i.e. minus the iron rice bowl] and a 1988 bankruptcy
law terminating workers’ guarantee of lifelong employment…. Most decisive was the massive layoffs at the end of the 1990s….
By the early 2000s employment in state-owned enterprises had halved,
from 70 to 33 per cent of the urban workforce, with some 30 to 40
million workers displaced.

Finally, a transition to wage-labour followed from the collapse of rural
township and village enterprises (TVEs). These flourished in the wake
of the dissolution of the communes, with the first phase of
liberalization in the early 1980s, especially in Guangdong, Fujian, and
around Tianjin and Shanghai. By the early 1990s, they had mushroomed to
25 million firms, employing well over 100 million people—with as much as
40 percent of the total manufacturing output. Owned and operated by
local governments, they usually embodied socialist obligations to
provide jobs, wages and social benefits to villagers, and to support
agriculture and rural infrastructure. Many worked as subcontractors to
urban state enterprises. Hence, when many lead-firm SOEs went bankrupt
in the 1990s or found more cost-effective suppliers, thousands of TVEs
were left in the lurch…. As these small
enterprises imploded, millions of workers were stranded. The result has
been a two-stage incorporation of peasants into the proletariat, first
as TVE workers nominally protected by the obligations of local
government, then as proletarians subject to the full force of the
market—Marx’s shift from “formal” to “real” subsumption of labor.28

More recently, as we shall see in a later section of the paper, the
robbing of many peasants (indeed entire villages) of the small plots
that were allocated at the time of the breaking up of the collectives in
the early 1980s, has now accelerated into a national struggle, leading
to massive rural protests.

The privatization of state assets and the robbing of state
enterprises have produced enormous wealth at the top in China, with the
leading capitalists obtaining their wealth through cronyism. More than
90 percent of those in the richest 20,000 people in China are said to be
“related to senior government or Communist Party officials,” creating a
whole class of millionaire and billionaire “princelings,” the offspring
of top officials.29 In addition, land expropriated from farmers for sale to developers has enriched an untold number of local officials.

The market reforms included what Deng called an “open door” policy,
in which China put out the welcome sign for multinational
corporations—in sharp contrast to other East Asian nations like South
Korea, which at a similar stage in its development placed heavy
restrictions on foreign direct investment in industry. Production in
China was increasingly geared to exports of manufactured goods
associated with the supply chains of Triad-based multinational
corporations. China was the second biggest recipient of foreign direct
investment in the world in 2009, after the United States. According to a
2006 report by the Development Research Center of the State Council
(China’s cabinet), foreign capital (concentrated in the export sector)
controlled 82 percent of market share in communications, calculator, and
related electronics; 72 percent in instrumentation products, cultural,
and office machinery; 48 percent in textile apparel, footwear, and hats;
49 percent in leather, fur, feather, and related industries; 51 percent
in furniture; 60 percent in educational and sports products; 41 percent
in plastics; and 42 percent in transport equipment.30

As indicated by Shaun Breslin, professor of politics and
international studies at the University of Warwick, after factoring in
re-exports through Hong Kong and elsewhere, roughly 30 percent of all
exports from China in 1996–2005 ended up in the United States; about 26
percent in Japan; and around 16 percent in the European Union. Others,
in determining the effects of re-exports, have estimated the U.S. share
of China’s exports even higher, at 50 percent.31

In the complex global supply lines of multinational corporations,
China primarily occupies the role of final assembler of manufactured
goods to be sold in the rich economies. Export manufacturing is directed
not at the actual production of goods, but at commodity assembly using
parts and components produced elsewhere and then imported to China. The
final commodity is then shipped from China to the developed economies.

China is the world’s biggest supplier of final information,
communications, and technology goods, and multinational corporations
accounted for about 87 percent of China’s high-tech exports at the
beginning of 2006. But, the parts and components for these high-tech
goods are almost all imported to China by multinationals for assembly
prior to their export via multinationals to the markets within the
Triad.32
Consequently, most of the costs of goods associated with exports from
China typically do not represent value captured by the Chinese economy.
According to the Federal Reserve Bank of San Francisco, “In 2009, it
cost about $179 in China to produce an iPhone, which sold in the United
States for about $500. Thus, $179 of the U.S. retail cost consisted of
Chinese imported content. However, only $6.50 was actually due to
assembly costs in China. The other $172.50 reflected costs of parts
produced in other countries.”33

Within the East Asia region as a whole, China’s is the final
production platform, with other East Asian nations, like Japan, South
Korea, and Singapore producing the parts and components. China’s imports
of parts and components increased almost twenty four times in
1992–2008, while its final goods trade increased only around twelve
times in the same period. In 2009, 17 percent of its parts and
components imports came from Japan, 17 percent from South Korea, 15
percent from the ASEAN6 (Brunei, Indonesia, Malaysia, Philippines,
Singapore, and Thailand), 10 percent from Europe, and 7 percent from
North America. Hence, it is not so much China that is the producer of
electronic goods and information, communication, and technology
products, but rather East Asia as a whole, within a global supply chain
still dominated by multinational corporations within the Triad.34

The Chinese economy today is thus structured around the offshoring
needs of multinational corporations geared to obtaining low unit labor
costs by taking advantage of cheap, disciplined labor in the global
South, a process known as “global labor arbitrage.” In this global
supply-chain system, China is more the world-assembly hub than the world
factory.

In an article written in 1997, Jin Bei, head of the Research Group
for a Comparative Study of the International Competitiveness of China’s
Manufactured Goods, Chinese Academy of Sciences, contended that most
goods being exported from China were not Chinese domestically
manufactured goods, but rather should be identified as
“para-domestically manufactured goods” reflecting a supply chain under
the control of foreign multinationals. “Foreign partners,” he wrote,

obtain the bulk of the direct economic benefits
from manufactured goods turned out by wholly foreign-owned businesses
and Sino-foreign joint ventures in which they have controlling shares.
Such goods do not primarily involve the actualization of China’s
productive forces, but the actualization of foreign productive forces in
China, or the economic actualization achieved by turning Chinese
resources into productive forces subject to the control of foreign
capital owners. These goods should not, therefore, be identified in
principle as manufactured goods made in China….
For example of the ten top brands of shirts in the world, seven are
produced by the Beijing Shirt Factory, yet for producing a shirt bearing
the Pierre Cardin label that retails for 300 yuan, the factory only
receives three to four yuan in processing fees. How can these shirts be
convincingly identified as Chinese-made?35

In order to illustrate the effects of global supply chains it is
useful to look at the famous example of Barbie and the world economy. A
Barbie doll (“My First Tea Party Barbie”) marketed in California in 1996
sold at a price of $9.99 and was labeled “Made in China.” Nearly all of
the raw materials and parts that made up the doll, however, were
imported, while Chinese workers put together the final Barbie. (At the
time there were two Barbie factories in China and one each in Indonesia
and Malaysia.) Each factory in China employed around 5,500 workers. Most
of the plastic resin in the form of pellets or “chips” was probably
imported via the Chinese Petroleum Corporation, Taiwan’s state-owned oil
importer. The nylon hair came from Japan. The cardboard packaging and
many of the paint pigments and oils used for decorating the dolls came
from the United States. Only the cotton cloth for Barbie’s dress came
from China, which otherwise simply supplied labor to assemble the dolls.
The workers operated the plastic mold-injection machines, painted the
details on the doll (requiring fifteen different paint stations), and
sewed the clothing. Workers were paid around $40 a month. The total
labor cost for each Barbie was a mere 35 cents, or 3.5 percent of the
final retail price.36

In 2008 Chinese manufacturing workers on average, according to the
U.S. Bureau of Labor Statistics, received only 4 percent of the wage
compensation of manufacturing workers in the United States. Hence, the
added margin of profit to be obtained by producing in China (with the
same technology) instead of the United States or other developed
countries can be enormous. Chinese workers that assemble iPhones for
Foxconn, which subcontracts for Apple, are paid wages that only
represent 3.6 percent of the final total manufacturing cost (shipping
price), contributing to Apple’s huge 64 percent gross profit margin over
manufacturing cost on iPhones, according to the Asian Development Bank.37

Work under these conditions, especially if it involves migrant labor,
often takes the form of superexploitation, since the payment to workers
is below the value of labor power (the costs of reproduction of the
worker). The KYE factory in China produces manufactured goods for
Microsoft and other U.S. factories, employing up to 1,000 “work-study”
students 16–17 years of age, with a typical shift running from 7:45 A.M.
to 10:55 P.M. Along with the “students,” the factory hires women 18–25
years of age. Workers reported spending ninety-seven hours a week at the
factory before the recession, working eighty plus hours. In 2009, given
the economic slowdown, the workers were at the factory eighty-three
hours a week, and on the production line sixty-eight. Workers race to
meet the requirement of producing 2,000 Microsoft mice per shift. The
factories are extremely crowded; one workshop, 105 feet by 105 feet, has
almost 1,000 toiling workers. They are paid 65 cents an hour, with 52
cents an hour take-home pay, after the cost of abysmal factory food is
deducted. Fourteen workers share each dorm room, sleeping on narrow bunk
beds. They “shower” by fetching hot water in a small plastic bucket for
a sponge bath.38

Similar conditions exist at the Meitai Plastics and Electronics
Factory in Dongguan City, Guangdong. There two thousand workers, mostly
women, assemble keyboards and computer equipment for Microsoft, IBM,
Hewlett-Packard, and Dell. The young workers, mostly under thirty, toil
while sitting on hard stools as computer keyboards move down the
assembly line, one every 7.2 seconds, 500 an hour. A worker is given
just 1.1 seconds to snap each separate key into place, continuing the
operation 3,250 times every hour, 35,750 times a day, 250,250 times a
week, and more than a million times a month. Employees work twelve hour
shifts seven days a week, with two days off a month on average. They are
at the factory eighty-one hours a week, while working for seventy-four.
They are paid 64 cents an hour base pay, which is reduced to 41 cents
after deductions for food and room. Chatting with other workers during
work hours can result in the loss of a day and half’s pay.

Meitai workers are locked in the factory compound four days of each
week and are not allowed to take a walk. The food consists of a thin,
watery rice gruel in the morning, while on Fridays they are given a
chicken leg and foot as a special treat. Dorm rooms are similar to the
KYE factory with bunks lined along the walls and small plastic buckets
to haul hot water up several flights of stairs for a sponge bath. They
do mandatory unpaid overtime cleaning of the factory and the dorm. If a
worker steps on the grass on the way to the dorm she is fined. Workers
are regularly cheated out of 14 to 19 percent of the wages due to them.
The workers are told that “economizing on capital…is the most basic requirement of factory enterprise.”39

The Yuwei Plastics and Hardware Product Company in Dongguan pays its
workers eighty cents an hour base pay for fourteen-hour shifts, seven
days a week, making auto parts, 80 percent of which are sold to Ford. In
peak season, workers are compelled to work thirty days a month. In
March 2009 a worker who was required to stamp out 3,600 “RT Tubes” a
day, one every twelve seconds, lost three fingers when management
ordered the infrared safety monitors turned off so that the workers
could work faster. The worker was paid compensation of $7,430, a little
under $2,500 a finger.40

What drives the global labor arbitrage and the superexploitation of
Chinese labor of course is the search for higher profits, most of which
accrue to multinational corporations. This can be seen in a study
carried out by the National Labor Committee and China Labor Watch of Pou
Yuen Plant F in in Dongguan (owned by the Taiwanese Pou Chen Group).
The vast majority of the production in Plant F is carried out for the
German sports lifestyle corporation PUMA. Plant F in 2004 had around
3,000 workers with the median age twenty to twenty-two years. The base
wage for these workers was 31 cents an hour, $12.56 a week. They worked
13.5–16.5 hour daily shifts from 7:30 A.M. to 9:00 P.M., 11:00 P.M, or
midnight, with one, three, or four days off a month. Twelve workers
share a crowded dorm room. The report found:

From beginning to end the total cost of labor to make a pair of PUMA
sneakers in China comes to just $1.16. The workers’ wages amount to
just 1.66 percent of the sneakers’ $70 retail price. It takes 2.96 hours
to make a pair of sneakers.

PUMA’s gross profit on a pair of $70 sneakers is $34.09.

PUMA’s hourly profit on each pair of sneakers is more than
twenty-eight times greater than the wages workers received to make the
sneaker.

PUMA is making a net profit of $12.24 an hour on every production
worker in China, which comes to an annual profit of $38,188.80 per
worker. For Pou Yuen Plant F alone, PUMA’s net profit gained from the
workers exceeds $92 million.

Even after accounting for all corporate expenditures involved in
running its business—which the workers in China are ultimately paying
for—PUMA’s net profit on each $70 pair of sneakers is still $7.42, or
6.4 times more than the workers are paid to make the sneaker.

In the first five days and two hours of the year—before the first
week is even over—the workers in China have made enough PUMA sneakers to
pay their entire year’s salary.41

In 2010 eighteen workers, aged eighteen to twenty-five, at the
Foxconn factory complex in Shenzhen, which produces iPhones and iPads
for Apple, attempted suicide, fourteen succeeding, the others injured
for life. This created a national and international scandal, and brought
world attention to these conditions of extreme exploitation.42

Although China has minimum-wage legislation and various labor
regulations, more and more workers (primarily migrants) toil in an
unregulated, informal sector within industry in which minimum wages do
not apply and a portion of workers’ wages are withheld. According to
Anita Chan in China’s Workers Under Assault: The Exploitation of Labor in a Globalizing Economy (2001), the minimum wage levels are set “at the lowest possible price…while
maintaining [the] workers’ physical survival,” although many workers
are denied even that. “Workers’ wages are eroded by a multitude of
deductions” for such things as forgetting to turn off lights, walking on
the grass, untidy dormitories, and talking to others at work. In a
survey carried out by the Guangdong trade union, it was revealed that 32
percent of workers were paid below the legal minimum wage.43

The global labor arbitrage that lies behind this system of extreme
exploitation is in fact a system of imperial rent extraction that feeds
the profits of global monopoly-finance capital.44
China’s extraordinary growth is thus a product of a global system of
exploitation and accumulation, the chief rewards of which have been
reaped by firms located in the center of the world economy.

The floating population

In order to understand the extreme exploitation of labor in China,
and the unique class contradictions associated with this, it is
necessary to examine the role of its “floating population.” In the
household registration (hukou) system set up in 1955–58, each
individual was given a particular household registration in the locality
of his/her birth. This places limitations on internal migration within
the country. The “floating population” thus consists of those who live
in an area outside their place of household registration, of which there
are currently 221 million people, 160 million of which are said to be
rural migrants outside their home county. This rural migrant labor
population makes up almost 70 percent of the workers in manufacturing
and 80 percent in construction. They occupy the lowest rungs in urban
employment and are paid wages far less than the national urban average,
while often working 50 percent longer hours.

In Beijing around 40
percent of the population in 2011 were migrant workers, with temporary
residence. In the city of Shenzhen nearly 12 million out of a total
population of 14 million people are rural migrants. In addition to
receiving much lower pay, rural migrants lack the benefits provided to
urban-based workers in the cities, and frequently live and work at the
factory in dormitory conditions. The vast majority of rural migrant
laborers are under thirty-five-years of age—in 2004 the average age was
twenty-eight. They work in industrial centers under superexploitative
conditions (i.e., receiving wages below the normal reproduction costs of
workers) for a few years and then typically return to the land and
their peasant origins.

The enormously long hours worked under hazardous conditions in China,
particularly by rural migrant workers, takes its toll in terms of
industrial accidents. According to official data, there were 363,383
serious work-related accidents in China in 2010, which included 79,552
deaths. This represented a marked improvement since 2003, when there
were 700,000 work-related accidents and 130,000 fatalities. Most of the
victims are migrant workers.45

Although Western scholars have often treated migrant workers in China
in terms of the standard model of surplus labor attracted to the cities
(based on the development model associated with the work of W. Arthur
Lewis and ultimately derived from Marx’s reserve army analysis) the
conditions of the labor surplus in China are in many ways unique.
China’s floating population can be seen as constituting a reserve army
of labor in Marx’s terms but with a distinct difference. Its
distinctiveness lies in the temporary and partial nature of
proletaranization and in the permanent connection of migrants to the
land—a product of the Chinese Revolution and the clay rice bowl.

Peasants retain land use rights (a form of equity in that land), which
are periodically reallocated by village collectives on a relatively
egalitarian basis, taking into consideration their occupation of and
work on the land. This provides an incentive for rural migrants to
maintain a strong connection to their families and the land. The
miniscule peasant holdings—on average 1.2 acres but as small as an
eighth of an acre—offer a bare bones existence: a homestead with a roof
overhead and food to eat. Although market reformers have sought to break
up these plots, few families are willing to give up their clay rice
bowl—their use rights to the land. However, in order to prosper under
these conditions, peasant families must periodically seek nonfarm work
to supplement their meager earnings. This gives rise to the growing
phenomenon of rural migrant labor, which is intensified due to
reductions in state support in rural areas during the market reform
period.46

Rural migrants send remittances back to their families and attempt to
save a part of their income to bring back with them. There is strong
evidence to suggest that—above and beyond the enormous obstacles to
obtaining permanent urban residence status—rural migrants have a strong
desire to return to the countryside due to their continuing links to the
land, which provides some security. Land is regarded as a permanent
asset that can be passed on to future generations. Thus in a state
survey in 2006 only 8 percent of rural migrants indicated that they
planned to stay long-term in their urban destination. During the
migratory stage of their lives rural migrants float back and forth. One
survey in 2002 found that only 5 percent of migrants did not return home
that year, while 60 percent spent less than nine months away from their
home counties. The return migration serves to cushion the economy in a
downturn. During the Great Financial Crisis of 2007–09, which resulted
in a sharp drop in Chinese exports, there was a significant drop (14–18
million) in the number of migrant workers, as rural migrants who were
unable to find employment returned to the land, and new outward
migration decreased. The result of this reverse migration was to hold
down unemployment—to the point that wages actually increased during the
crisis due to labor shortages in industry (induced in part by China’s
quick economic turnaround) and in response to food price inflation.47

Some analysts have commented on how the structural features of rural
migration allow high-quality labor power to be reproduced in the rural
regions, effectively outside of the capitalist market economy, which
then becomes available on a floating basis for its intensive
superexploitation in the cities—without urban industry having to foot
the real costs of the reproduction of labor power.48
Costs are kept low and productivity high because production is carried
out by young workers who can be worked extremely intensively—only to
return to the countryside and be replaced by a new inflow of rural
migrants to industry. The eighty hour plus work weeks, the extreme pace
of production, poor food and living conditions, etc., constitute working
conditions and a level of compensation that cannot keep labor alive if
continued for many years—it is therefore carried out by young workers
who fall back on the land where they have use rights, the most important
remaining legacy of the Chinese Revolution for the majority of the
population. Yet, the sharp divergences between urban and rural incomes,
the inability of most families to prosper simply by working the land,
and the lack of sufficient commercial employment possibilities in the
countryside all contribute to the constancy of the floating population,
with the continual outflow of new migrants.

Land, labor and environmental struggles

Although a number of left analysts, as we have seen, continue to point to Chinaas a case of “accumulation without dispossession,”49
primarily due to the rural peasantry’s retention of land use rights, in
our view the evidence suggests that China is less of a departure from
the standard pattern. Such an extreme, rapid development of a capitalist
market economy is impossible without primitive accumulation, i.e.,
dispossessing the population of their assets and direct relation to the
means of production. Hinton argued in The Great Reversal in
1990 that in order to carry out the primitive accumulation of capital in
China it would be necessary for capitalists to weaken and then smash
both the iron rice bowl and the clay rice bowl, the chief gains of the
mass of the population in the Chinese Revolution.50
Both rice bowls have been under attack. In response to this—as well as
to the driving exploitation of workers and growing inequality—the
protests of workers and peasants have been increasing in leaps and
bounds.

The number of large-scale “mass incidents” (petitions,
demonstrations, strikes, and riots) in China has risen from 87,000 in
2005 to 280,000 in 2010, according to official Chinese sources.51
The two main sources of conflict are: (1) land disputes, especially in
response to illegal land requisitions, regarded as attacks on the clay
rice bowl; and (2) labor disputes, particularly the resistance of
workers within state enterprises to relentless privatization and the
smashing of the iron rice bowl. In addition, there are rapidly growing
struggles by workers and peasants over environmental destruction.

In 2002–05 thousands of peasants were involved in protests in
Dongzhou village in Guangdong against the building of an electricity
plant that had resulted in a land requisition for which they were not
fairly compensated. Workers built sheds outside the plant and attempted
to block its construction. Conflict with the authorities led to a major
part of the plant being blown away by explosives and the police opening
fire on protesters in December 2005, leading to a number of deaths.

In December 2011 an uprising began in Wukan, a coastal village of
about 20,000 in Guangdong. Villagers set up roadblocks, chased away
government representatives, and began arming themselves with homemade
weapons in protest over a land requisition, which appropriated their
land with little or no compensation. After a ten-day standoff with the
local government the villagers agreed to end their protest and reopen
the village, when a number of their demands were met.

These cases reflect struggles going on all over China, increasingly threatening, as Bloomberg Businessweek
states, “the reversal of one of the core principles of the Communist
Revolution. Mao Zedong won the hearts of the masses by redistributing
land from rich landlords to penniless peasants. Now, powerful local
officials are snatching it back, sometimes violently, to make way for
luxury apartment blocks, malls, and sports complexes in a debt-fueled
building binge.” Local provincial, county, and city governments had
accumulated debts of 2.79 trillion yuan ($412 billion) by the end of
2009, spurred on by government’s fiscal stimulus in response to the
Great Financial Crisis. The local governments used land belonging to
villagers to secure the debt in their localities, promising land sales.
Hence, cities are grabbing land to finance their mushrooming debt.

Falling real estate prices have accelerated the process, forcing
local governments with inadequate tax bases to engineer more land sales.
Land sales currently account for around 30 percent of total local
government revenues, and in some cities make up more than half the
revenue. Land is being sold without the support and at the expense of
the villagers who have use rights to plots that are collectively owned;
while the proceeds of such land sales are lining the pockets of local
officials. Not only do the peasants lose their permanent relation to the
land (and the clay rice bowl), they are being compensated at rates far
below the value for which the land is being sold to developers by the
local authorities. Some 50 million peasants lost their homes during the
previous three decades, while the expectation is that some 60 million
farmers will be uprooted over the next two decades.52

Labor disputes are still the most common form of mass incident,
accounting for some 45 percent of the total according to one estimate.
In the summer of 2010 China’s leading industries in auto, electronics,
and textiles were hit by dozens of strikes. Although the role of
state-owned enterprises (SOEs) in China has declined under the force of
privatization, there still remain some 60 million employees of SOEs in
urban areas.53
“In the Maoist socialist era,” as Minqi Li has written, “the Chinese
[state] workers enjoyed a level of class power and dignity unimaginable
by an average worker in a capitalist state (especially in the peripheral
and semi-peripheral context).” In the period of market reforms these
workers have been increasingly reduced to a state-sector proletariat,
but with remnants of the iron rice bowl (or at least its ghostly memory)
remaining where workers are strongest. This has led to intense class
struggles. In 2009 workers at the Tonghua Iron and Steel Company in
Jilin province revolted against privatization and massive layoffs,
carrying out a general strike under the leadership of a Maoist-era
worker known as “Master Wu.” When the general manager of a powerful
private company that was taking over the enterprise threatened to fire
all of the workers, the workers beat him to death. The government backed
off and canceled the privatization plan.54

After land and labor disputes, the largest number of mass incidents
in China are associated with environmental factors, particularly
struggles over pollution. China’s environmental problems are massive and
growing. It now has sixteen of the world’s twenty most polluted cities.
Two-thirds of urban residents are breathing air that is severely
polluted. Lung cancer in China has increased 60 percent over the last
decade even though the smoking rate has remained unchanged.
Desertification is leading to the loss of about 6,000 square miles of
grasslands every year, around the size of Connecticut. This contributes
to sandstorms, resulting in the dust that represents a third of China’s
air pollution problem. Water shortages, especially in northern China,
and water pollution are both growing. China has only 6 percent of the
world’s freshwater but over three times that share of the world’s
population. Its per capita water supply is down to a quarter of the
global average, while 70 percent of the country’s rivers and lakes are
severely polluted. Some 300 million people in the rural areas are
drinking unsafe water, while one-fifth of the drinking water sources in
the major cities are below standard. Massive dam projects designed to
deliver electricity are leading to farmland loss, ecological damage, and
the forced migration of millions. In 2008 China surpassed the United
States as the leading emitter of greenhouse gases (although far below
the latter in per capita emissions). Such conditions have led to an
upsurge in environmental mass protests. Complaints to authorities
increased by about 30 percent a year between 2002–04, reaching 600,000
annually, while the official tally of disputes in relation to
environmental pollution hit 50,000 in 2005.55

Most of China’s manufacturing force, as we have seen, consists of a
floating population which remains tied to the land and user rights (the
clay rice bowl), while also experiencing extreme exploitation and
degraded environmental conditions in the cities. Given this, the
struggles over land, labor, and the environment are wedded in China as
nowhere else—to the point that we may be witnessing the emergence of an
environmental proletariat, along with a partially proletarianized,
relatively independent, and egalitarian peasantry.56

As Samir Amin argues, urban China is incapable of absorbing the
hundreds of millions of rural workers in China (a dilemma that exists at
various levels throughout the global South). Hence, some 50 percent of
the Chinese population will have to remain rural. China does not have
the external outlet for surplus population that was available to
industrializing Europe during the period of colonial expansion.

In China’s case, the legacy of its revolution has created an
independent peasantry that feeds 22 percent of the world population with
7 percent of the world’s arable land, with an equitable land
distribution. Rather than seeing this as an archaic weakness of the
society, to be subjected to relentless primitive accumulation, it should
be seen as a strength of Chinese society, which reflects the genuine
need for access to the land on the part of half of humanity.57

China and the world crisis

With the economic Triad of the United States (and Canada), Europe,
and Japan caught in continuing economic stagnation—made more evident
following the Great Financial Crisis—the focus has been increasingly on
China as the means of lifting the world economy. Thus the Winter 2010
issue of the journal The International Economy carried the responses of more than fifty orthodox economists from various countries to the question: Can China Become the World’s Engine for Growth?
The answers varied widely, but most of those questioned emphasized the
internal contradictions of the Chinese economy, its tendency towards
overinvestment and export dependency, its low consumption, and its need
to rebalance.58
Recently, fears that the contradictions of the Chinese economy may
further imperil the entire world accumulation process—if China is not
able to rebalance toward higher consumption, lower debt, and a higher
renminbi—are voiced daily by international capital. Worries that the
days of China’s economic miracle are numbered and that it is headed
towards a sharp slowdown in growth and financial crisis are now
prevalent. As Paul Krugman wrote in a New York Times column entitled “Will China Break?” on December 18, 2011:

Consider the following picture: Recent growth
has relied on a huge construction boom fueled by surging real estate
prices, and exhibiting all the classic signs of a bubble. There was
rapid growth in credit—with much of that growth taking place not through
traditional banking but rather through unregulated “shadow banking”
neither subject to government supervision nor backed by government
guarantees. Now the bubble is bursting—and there are real reasons to
fear financial and economic crisis.

Am I describing Japan at the end of the 1980s? Or am I describing
America in 2007? I could be. But right now I’m talking about China,
which is emerging as another danger spot in a world economy that really,
really doesn’t need this right now…a new [potential] epicenter of crisis.59

But few mainstream analysts, Krugman included, recognize the true
intensity of the economic, social, and environmental contradictions in
China, which make its development pattern unsustainable in every
respect. These contradictions are now giving rise to hundreds of
thousands of mass protests annually, as peasants struggle to retain
their use rights to the land, the floating population (itself still
connected to the land) resists superexploitation, state workers defy
privatization, and millions more struggle against environmental
degradation.

The story usually presented in the U.S. media of a nation-state
competition (and occasional collaboration) between the United States and
China hides the deep and growing class inequities in a country where
the golden rice bowl of the state bureaucrats has been so enlarged that
the families of the most powerful Party members control billions of
dollars in wealth. For example, the family of China’s Premier Wen Jiabao
has a wealth estimated at $4.3 billion—in a country where wage income
is among the lowest in the world, and where inequality is skyrocketing.60

Chinese low-wage exports have been almost entirely consumer durable
goods (Department II in the Marxian reproduction schemes as opposed to
Department I, investment goods), notably in the areas of information
technology and communications, and electronics—but also including
clothing, furniture, toys, and various household products. In 2010 “Made
in China” goods accounted for 20 percent of furniture and household
equipment sold in the United States, 12 percent of other durables, and
36 percent of clothing and shoes.61

Such Chinese imported commodities are referred to as “deflationary”
goods in corporate lingo, since they reduce the cost of many goods
usually purchased with wages, and offset higher prices on other items of
mass consumption, such as gasoline. Wal-Mart, which alone accounts for
12 percent of the goods shipped to the United States from China, has
even been called the greatest friend of the U.S. working class. Indeed,
as W. Michael Cox, chief economist for the Federal Reserve Bank of
Dallas put it, given its low prices, “Wal-Mart is the best thing that
ever happened to poor people.”62
Yet, these same low-priced imported goods, which Wal-Mart exemplifies,
make it possible for real wage levels in the United States and other
rich countries to stagnate—as the relative shift of manufacturing
employment to the global South, pulls down wages directly and indirectly
(and as what were well paying jobs disappear).

The growth of cheap manufactured imports has often led to calls for
protectionism on the part of U.S. labor groups. However, there is little
acknowledgement that these cheap imports are produced by or for
multinational corporations headquartered in the Triad. The real
struggle, then, is one of creating international solidarity between
Chinese workers, who are suffering from extreme forms of exploitation
(even superexploitation), and workers in the developed world, who are
currently losing ground in a race to the bottom. Today much of the basis
for such international worker solidarity can be found in the struggles
of workers and peasants in China; which could conceivably be
strengthened further by the resurrection of the revolutionary process in
China (a turn to the left).

For the New York Times, nothing but “Mao’s resurrection or
nuclear cataclysm” is likely to arrest China’s current course. Yet, if
what is meant by “Mao’s resurrection” is the renewal in some way of the
Chinese Revolution itself—which would necessarily take new historical
forms as a result of changing historical conditions—the potential
remains, and is even growing under current conditions.63

In 1853, Karl Marx argued that the Chinese Revolution of those days
(the famous Taiping Rebellion) might destabilize the financial
conditions of the British Empire and hasten the possibilities of revolt
in Europe.64
Although Marx’s expectations were disappointed, his notion that the
fates of China and the West were tied together was in many ways
prophetic. China’s deepening contradictions will undoubtedly have an
effect on the Triad and on the world as a whole, in what now appears to
be the descending phase of capitalism.

[John Bellamy Foster is editor of Monthly Review and professor of sociology at the University of Oregon. Robert W. McChesney is Gutgsell endowed professor of communications at the University of Illinois at Urbana-Champaign.]

Notes

↩ “From the Great Recession to the Great Stagnation,” Forbes, October 10, 2011, http://forbes.com; Tyler Cowen, The Great Stagnation (New York: Penguin, 2010).

↩ Christine Lagarde, “An Address to the 2011 International Finance Forum,” Beijing, November 9, 2011, http://imf.org. See also C. Ryan Knight, “Dark Clouds, Over the Boat: On China, Production, and Financialization,” November 11, 2011, http://lecoupdoeil.wordpress.com.

↩ See John Bellamy Foster, “Monopoly-Finance Capital and the Paradox of Accumulation,” Monthly Review 61, no. 5 (October 2009): 1–20; John Bellamy Foster and Fred Magdoff, The Great Financial Crisis (New York: Monthly Review Press, 2009); “Calculating the Coming Slowdown in China,” New York Times;
Christine Lagarde, “The Path Forward—Act Now and Act Together,” Opening
Address to the 2011 Annual Meetings of the Boards of Governors of the
World Bank Group and the International Monetary Fund, September 23,
2011, http://imf.org.

↩ Galvin Hale and Bart Hobijn, “The U.S. Content of ‘Made in China,’” Federal Reserve Board of San Francisco, FRBSF Economic Letter, August 8, 2011. “The U.S. Economy and ‘Made in China,’” http://frbsf.org.

↩ Hyun-Hoon Lee, Donghyun Park, and Jing Wang, The Role of the People’s Republic of China in International Fragmentation and Production Networks, Asian Development Bank, ADB Working Paper Series on Regional Economic Integration, 87 (September 2011): 5, 15–16.